MarketView for November 29

Summary 

Somehow I would have difficulty saying that it was a good day on the Street, despite the fact that the Dow Jones industrial average and the S&P 500 indexes ended the day in positive territory. Yes, consumer confidence was up and up strongly. That was certainly a good sign. However, Europe remains a morass from which extrication continues to remain difficult for all and near impossible for Greece. And yet hope springs eternal.

Meanwhile, defensive sectors such as utilities and consumer staples were among the day’s best performers. Helping to lift the mood on Wall Street, the Conference Board, an industry group, said its index of consumer confidence jumped to its highest level since July, handily topping expectations.

Financial shares limited the advance, with the S&P financial index down 0.6 percent. Shares of Bank of America fell 3.2 percent to close at $5.08, its lowest closing level since March 2009. Bank shares in general have been decimated by worries that the impact of the euro zone crisis could spread through the global financial system. The losses the financial sector is being pounded with underwrite the fragility of any real rally until such time as the European Union policymakers resolve matters one way or another, once and for all.

In a positive sign for the euro zone, Italian bond yields fell from session highs. In the auction, Italy's government sold 7.5 billion euros of three- and 10-year bonds, close to the upper end of its target range. The Street was also keeping an eye on a meeting of European officials in hopes they will make progress in resolving the region's debt crisis.

The day's most actively traded stock on the Big Board was AMR, even though it was halted 28 times throughout the day. It plunged 84 percent to 26 cents a share after the company, parent of American Airlines, filed for bankruptcy protection and named a new chairman and chief executive.

After the market's close, Standard & Poor's reduced its credit ratings on several big banks in the United States and Europe, including JPMorgan Chase and Bank of America. S&P said the actions were the result of a sweeping overhaul of its ratings criteria. The affected banks could see higher funding costs, a fixed income strategist said.

Weakness in some large-cap Internet stocks also weighed heavily on the Nasdaq after strong gains in those stocks on Monday. Amazon fell 3 percent to close at $183.39.

Record Black Friday sales also provided the Street with some hope that the holiday shopping season will be a solid one for retailers. About 6.73 billion shares changed hands during the day on the three major equity exchanges, a number that was considerably below the daily average of 7.96 billion shares.

Consumer Sentiment Rises as Housing Prices Fall

Although consumer sentiment was unexpectedly high, an unexpected decline in the price of houses during the month of September underscored the weak foundations of the recovery. Consumer sentiment rebounded in November from a 2-1/2-year low last month. According to the Conference Board, its index of consumer sentiment hit 56.0 as compared to a 40.9 reading for the month of October. It was the highest level for that index since July.

Still, the confidence index remains historically low and is well below a recent peak of 72.0 in February. Looking at the data in more detail, consumers worried less about jobs and their income. A measure of how hard jobs are to get fell to its lowest since January 2009 at 42.1 percent. Expectations of income increases in the next six months rose to 14.9 percent from 11.1 percent.

Consumer confidence took a hit in recent months after political gridlock in August pushed the United States close to a debt default, worries grew about another recession and the euro zone debt crisis deepened. The cutoff date for the latest survey was November 15, before the failure of a congressional committee charged with tackling the budget deficit.

While fears of recession have ebbed, the economy remains sensitive to shocks, particularly the risk of fallout from the euro zone debt crisis.

Meanwhile retailers reported strong sales as the holiday shopping season got off to a positive start last week. According to the International Council of Shopping Centers, sales rose 1.7 percent last week, the largest gain since June, while the Johnson Redbook Index of large merchandise retailers showed sales rose 5.4 percent last week from a year earlier.

Separate data on Tuesday indicated that the housing market is still struggling to get back on its feet. The S&P/Case Shiller composite index of 20 metropolitan areas for September fell 0.6 percent from August on a seasonally adjusted basis. Prices in August were also revised to show a decline of 0.3 percent after originally being reported as unchanged.

Although the index has leveled off in recent months, prices are expected to stay weak into 2013 or longer, given the large number of homes still likely to come up for sale even as buyers stay on the sidelines.

Home prices are back at 2003 levels, the report said, and 15 of the 20 metro areas saw monthly price declines on a seasonally adjusted basis.

Compared to a year earlier, prices in the 20 cities were down 3.6 percent in September, slowing from a year-over-year decline of 3.8 percent the month before.

There was some other positive housing news. The number of homeowners who are 'underwater' on their mortgages -- meaning they owe more than their home is worth -- decreased modestly in the third quarter, though levels remained high. Data analysis firm CoreLogic has indicated that the number of properties with such 'negative equity' was 10.7 million, or 22.1 percent of all residential properties with a mortgage, a slight fall from the second quarter.

As the housing market struggles to recover, the large number of homeowners who are underwater has prompted concerns of more foreclosures to come if borrowers become unable to keep up with their payments or decide to walk away.